China UnionPay and the big banks make another push into the mobile payments market, but is it too little too late?

The 12th of December marked the official announcement by China UnionPay (CUP) of the launch of Cloud QuickPass, a mobile payment solutionbased on NFC (Near Field Communication) technology. Tests had been ongoing since May at franchises like McDonald’s, with the backing of the Industrial and Commercial Bank of China (ICBC) and builds on the existing QuickPass NFC technology deployed in many of the current CUP point-of-sale terminals around China.

For the product development, CUP collaborated actively with ICBC as well as other important banks (the other members of the Big 5 and most joint-stock banks). The People’s Bank of China (PBOC) seemed to be approving of the development too, as various higher-ups were present at the announcement ceremony (not surprising considering the relationship between the PBOC and CUP).

For many years, CUP, the banks and China's telcos have been trying to push into the mobile payments market. Since 2011, there have been several notable pilot projects and attempts around the country as mobile payments started to catch-on. Nothing stuck though as it seemed the different players had challenges reconciling their differences especially as no one wanted to give up control of the secure element that held user data.

This can be seen as the first really relevant and coordinated response from CUP and the banks to the dominance of private third-party payment companies such as Tencent’s WePay and (in particular) Alipay in the rapidly expanding market of mobile payments. But has it come too late or could it possibly hope to attract customers away from the incumbents?

First let’s take a look at QuickPass main characteristics: as said, it is a type of mobile payment based on NFC and does not require internet connection through the phone of the user, but at the same time it needs a merchant with a NFC-enabled POS. These kind of POS are starting to become popular and CUP has been pushing their deployment for years, but at the moment they are not as common as a QuickPass user would like representing only 25-40% of all POS-terminals in China.

Speaking of QuickPass users, they might also be limited in number by what is potentially the biggest restriction in that, at the moment, only Android phones can use QuickPass. Also, although most of newer phones are equipped with NFC-technology, older and cheaper models could be still lacking it.

Expansion on iOS mobiles is foreseen in the near future, as Apple announced the release in early 2016 of its own NFC payment system, Apple Pay, which is going to work “under QuickPass”. What this means is hard to tell at the moment, but it looks like CUP and Apple found a way of integrating the two systems on iOS devices.

Finally, the last characteristic differentiating QuickPass from the incumbents is how payments are related to banks: QuickPass requires a bank card (either a debit or a credit card) from which money can be moved to an account where it will be stored until it is used for a mobile payment (or an internet payment, as it can be used potentially on the web too). This transaction requires the use of the banks’ own mobile app.

This traceability of transactions and payments is very important for banks, which are constantly losing contact with their client base because of the exclusion of the Alipay and WePay networks from the banks’ one. In this sense, promoting QuickPass is a very good idea for these institutions, as it would start to give them information regarding their clients and the possibility of bundling other products (like the incumbents already do). However this also mean fragmenting the experiences and the feedbacks from those same clients (not including the fact that bank apps may be on different levels of user-friendliness, something that may alienate potential customers).

It is already possible to see how QuickPass could face several problems due to its own characteristics (temporary lack of complete mobile, OS and POS compatibility, need of cards, use of several different mobile apps), but still the greatest obstacle CUP has to face is in the market itself: Alipay and WePay have a clear incumbent advantage, leveraging an already huge number of active users and the diffusion of their other products on mobiles; most of people were using WeChat independently of payments for example, but once these were introduced it was easy for users to let these become part of their routine.

For banks and for China UnionPay, it is critical for them to more solidly find a position in the mobile payments market, as it represents the future of the whole industry and a highly profitable sector, however it looks like they realised this too late, allowing other firms to gain an advantage that could prove too big to overcome.

QuickPass could eventually solve some of the issues due to its own nature and maybe it could gain some popularity, as CUP has the resources and the methods to push it into some segments of the market (especially with big banks collaborating), but the largest slice of the pie has been already taken and the possibility of building a new way of doing business through data coming from mobile transactions is a ship that may have already sailed.